Doctors > Rate & Economic Update for the Physician & Doctor Loan: Rates Are Up a tad… and so Are Sales
Keeping you updated on the market!
For the week of
October 30, 2017
Rates Are Up… and so Are Sales
It’s more fours than threes these days.
Mortgage rates — rates on the long-end of the curve, in particular — are at a two-month high. Quotes of 4.125% on a prime 30-year fixed-rate loan are frequently on offer, according to the national data collected by Mortgage News Daily. On better days, 4% is on offer. A 3.875% quote has become much less prevalent.
This is all different from a few weeks ago, though its possible we could see rates trend lower in coming weeks. (Of course, anything is possible.) For the immediate future, though, a dip appears less likely.
Our own central bank, the Federal Reserve, has long ago telegraphed its intentions on monetary policy: Raising interest rates and reducing securities purchases are on order. More recently, the European Central Bank will likely reduce its bond purchases, and it could do so by half. This would tighten the money supply in Europe. Interest rates in Europe are more likely to rise.
“Likely” is not the same as guaranteed, though. As we’ve seen on our side of the Atlantic, market participants frequently buy the rumor and the sell the news (reverse course on the news). For the immediate future, say for the week, quotes above 4% on the 30-year loan will likely persist. Beyond the week, uncertainty prevails. More adventurous borrowers might want to float in anticipation of a rate reversal (the selling of the news).
Mortgage rates are up, but so are home sales, at least for September.
Existing-home sales posted their first gain in four months, rising 0.7% to 5.39 million units on an annualized rate. Price concessions contributed to the rise. The median price of an existing home fell 3.2% month over month to $245,100 .
Existing-home remains tight, at 1.9 million resales on the market. Supply is unchanged at only 4.2 months based on the latest sales numbers. With supply holding tight, sales growth will be difficult to achieve unless we see further price concessions.
As for new-home sales, they had no trouble posting a gain in September. Sales blew past nearly everyone’s estimate to post at 667,000 units on an annualized rate. Little discounting occurred to move inventory. The median price of a new home rose 5.2% for the month.
No doubt that some sales were attributable to a post-hurricane Harvey rebound. Sales in the South were up sharply from August, and at the highest level since July 2007. Some contracts in the South were surely delayed until September.
The South should continue to lead the way with a post-hurricane Irma rebound. New homes, in particular, should see elevated sales over the next couple months due to increase activity. That said, the post-hurricane Irma rebound will have less of impact on existing-home sales.
Date and Time
Case/Shiller Home Price Index
Tues., Oct. 31,
9:00 am, ET
5.7% (Annualized Increase)
Moderately Important. Price gains continue to outpace historical norms. The trend continues to suppress affordability.
Federal Reserve FOMC Meeting
Wed., Nov. 1,
2:00 pm, ET
Federal Funds Rate:
Moderately Important. The fed funds rate will hold until December when it will likely be increased. This expectation is priced into the market.
Fri., Nov. 3,
8:30 am, ET
Unemployment Rate: 4.2%
Payrolls: 75,000 (Increase)
Important. Hurricane effects will become less of a drag in October. Persistent wage growth will embolden the Fed to raise interest rates.
Is Renting Really the Better Deal?
According to the Wall Street Journal, 76% of millennials believe renting a home is the better deal compared to buying a home. The latest survey is a 10-point increase favoring renting compared with the same survey a year ago.
We tend to view such surveys with a degree of skepticism: We don’t know how the questions of affordability were worded. We do know that respondents tend to answer questions to satisfy the surveyor. The respondents are prone to say what they think the other person wants to hear.
All that aside, and if it is true that the younger generations view renting as the more affordable option, will the homeownership rate continue to decline?
It might not reverse course in the near term, but it will reach a point where it will reverse. That point might be closer than many of the experts expect.
Renting is certainly the preferable option when you first move out of the parent’s house. But continual rent increases and continual moving drive the longer-term costs higher.
Psychological costs also drag on the benefits of renting. An itinerant lifestyle becomes less satisfying the older we get. We want to own. We want to drive a nail into a wall without worrying about the security deposit. A neighborhood of owner occupiers is generally preferred over a neighborhood of renters.
When all the costs are considered — monetary and psychic — through time, renting becomes more of a false economy for many people. When we finally get a break on relentless home-price appreciation, that false economy will become more apparent to more people.
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